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Albania

Serbia
Capital Tirana
Population 2,876,000
Area 28,748 SQ KM (11,100 sq mi)
Currency lek (all)
GDP USD 13.07 billion
gdp per capita USD 4,545
FDI (2013-2017) USD 5,300 million
corporate tax 15%
vat 20%

GENERAL OVERVIEW

Albania is a parliamentary republic. Executive power rests with the Government. Albania held a parliamentary election on 25 June 2017.

Albania together with Croatia joined the North Atlantic Treaty Organization (NATO) on 1 April 2009. In order to become a NATO member, Albania undertook several reforms in areas such as political, military and security-sector. Priorities were set to meet democratic standards, reduce corruption, fight organized crime, improve public administration, and enhance good- neighborly relations.

In June 2014, the EU granted candidate status to Albania. Becoming an EU candidate country has a number of political and economic effects for Albania. The next important step will be the opening of accession negotiations; however, this will depend on further specific and sustainable reforms in Albania and is subject to agreement from all EU Member States.

LEGAL SNAPSHOT

The Republic of Albania has been nurturing an attractive business climate by offering investment incentives in the form of more favorable tax regimes compared to other EU countries, bilateral double-taxation and multilateral trade agreements, cheap and effective labour force. Albania has generally strived to achieve a high level of foreign trade liberalization through being a signatory of five trade agreements – EFTA, CEFTA, SAA (Stabilisation and Association Agreement) with EU member-states, Turkey and Ukraine. Furthermore, it signed agreements for the avoidance of double taxation and investment protection treaties with many European countries.

The Stabilization and Association Agreement guarantees the alignment of national legislation with EU laws, while conditions for investment and business are becoming recognizable and predictable for foreign investors.

TAX INCENTIVES

Starting from 1 January 2018, all services offered by four and five star hotels, provided they hold the special status, a trade registered mark and a worldwide recognized brand name, shall be subject to a reduced VAT rate of 6%. Targeting to promote the Albanian tourism, this change is a significant incentive for chain of registered trademarks’ hotels which may plan expanding their activities in the Balkans. Currently, any entity offering services in tourism activities regardless of the hotel rating are allowed to apply the reduced rate of 6% only for accommodation services.

We bring you here the current tax incentives policy snapshot for Albania.

Tourism

In addition, four-star and five-star hotels, shall be exempt from CIT (Corporate Income Tax) for a period of 10 years provided they have met the criteria for obtaining the special status up to December 2024. The effects of CIT exemption apply upon initiation of the business activity but not later than 3 years after receiving the special status. A decision of Council of Ministers shall determine the terms, conditions and procedures for implementing this provision.

Four-star and five-star hotels, holding the special status, a trade registered mark and a worldwide recognized brand name shall be exempt also from the payment of the tax on real estate and infrastructure tax.

In the near future, the Albanian Parliament is expected to approve also some changes to the Law on Tourism aiming to include additional definitions for accommodation structures and investors in the tourism sector. According to the expected changes, in order to qualify as a four-star and five-star hotel, the investment value should be respectively at least EUR 8 million and EUR 15 million. Accommodation structures could be hotels or resorts or a combination of them. Investors of four-star and five-star hotels with a special status should sign an agreement with the responsible Ministry in charge for tourism, where should be detailed the mutual obligations, project development terms, value of the project, limitations on transfer of the investment or part of them as well as consequences deriving from noncompliance with the agreement.

CIT and customs duty incentives for Information Technology Companies

Starting from 1 January 2018, the CIT rate for - entities operating in the Information Technology (IT) sector and dealing with software development shall be 5%. Reduce of the current CIT standard rate of 15% to 5% is an important incentive which is expected to attract new or international software development companies to register in Albania. Moreover, the approved changes in the customs duty legislation, provide for reduced customs duty rates applicable on import of equipment and devices to be used in the course of their ITC business activity.

Activities to be considered as related to the software development shall be determined separately in a decision of Council of Ministers.

Taxation of profit distributions or dividend payments

Based on Albanian tax legislation, dividends or profit paid by a foreign subsidiary owned by an Albanian entity are not included in the taxable income of the Albanian parent company.

Dividends or profit distribution paid by an Albanian subsidiary owned by an Albanian entity are exempt from withholding tax.

Tax incentives for solar panel systems

Entities and persons that produce or install solar panel systems may benefit from customs duties and value added tax exemptions on solar panel systems. When solar panel systems are produced or installed for producing hot water or for sanity purposes in buildings or technological processes in industry may be reimbursed for the customs duties paid on import of raw materials used for the production or assembly of these systems.

SPECIAL ECONOMIC ZONES

There are three active free economic zones in Albania, officially Technical and Economic Development Areas (TEDAs). Supervision of the zones falls under the Ministry of Economy, which selects the private developers and managers for the single zones through a public tender.

Types of incentives in Albania

Incentives Awarded aid Eligibility criteria Condition for use of aid Length of incentives Zone specific
No VAT on machinery 0% VAT. Machinery costing >EUR 360 000. The machinery must be targeted at increasing productivity n/a No
No excise on fuel 0% excise. For oil-producing companies. No further conditions n/a No
No VAT on import of cement and steel 0% VAT. Aimed at construction of hydropower plants. No further conditions n/a No
Assisted administrative procedures and red-tape reduction n/a - Investment in a “strategic sector”: power and mining industry, transport, electronic communications, infrastructure and urban waste, tourism, agriculture.

- Investments above EUR 100 million.
- In the power and mining industry an investment must be >= EUR 30 million/50 million.

- In the transport, electronic communications infrastructure and urban waste industry an investment must be >= EUR 30 million/50 million.

In the tourism (tourist structures) industry an investment must be >= EUR 5 million and create at least 80 jobs or >= EUR 50 million.

- In the agriculture (establishment of a large agricultural farm model) and fisheries an investment must be >= EUR 3 million and create at least 50 jobs or >= EUR 50 million.

For the sector "economic areas", including its sub-sectors investment must be >= EUR 5 million/50 million.

In the development priority areas an investment must be EUR 1 million and create at least 150 jobs or EUR 10 million and create at least 600 jobs.
n/a No
Expropriation of immovable assets, and private property, for the development and execution of the strategic investment project
Exemption from customs duties and VAT on importing foreign goods No custom duties and VAT exemption for all foreign goods imported in a free zone. Being a company registered in a TEDA. Undertake import activities of foreign goods. n/a Yes
VAT free No VAT on Albanian goods aimed at TEDAs. Being a company registered in a TEDA. Import Albanian goods into a TEDA n/a Yes
20% deduction on capital expenditure 20% deduction on capital expenditure within 2 years. Being a company registered in a TEDA. Users and developers who invest in a TEDA within 3 years of its formation. 2 years Yes
50% reduction on profit tax rate 50% reduction on 15% profit tax rate for 5 years. Being a company registered in a TEDA. Making profits. 5 years Yes
Exemption from infrastructure taxes No infrastructure taxes on new projects. Being a company registered in a TEDA. Building infrastructure within a TEDA. n/a Yes
Exemption from real estate taxation No taxes on real estate. Being a company registered in a TEDA. Building new real estate in a TEDA. 5 years Yes
Exemption from real estate transfer taxation No transfer taxation on buildings. Being a company registered in a TEDA. Buildings must be transferred to a TEDA. n/a Yes
150% deduction of wages and social contributions 150% deduction of wages and social contributions for the first year, and subsequent new expenses compared to previous year also deductible by 150% in subsequent years. Being a company registered in a TEDA. Hiring workers during activity in the TEDA. n/a Yes
200% deduction of training costs 200% deduction of training costs for employees. Being a company registered in a TEDA. Providing training to employees. 10 years Yes
200% deduction of R&D expenditures 200% deduction of R&D expenditures. Being a company registered in a TEDA. Conducting R&D activity. 10 years Yes

 

Regulatory framework

- Law on Establishment and Regulation of TEDAs (Law No. 9789, dated 19.07.2007)
- Decision No. 646 and 647 of the Council of Ministers dated 22.07.2015 for procedures on developer section and criteria for operators and fiscal incentives in the TEDAs.
- Decision No. 106 of the Council of Ministers dated 10.02. 2016 defines the zones, details infrastructure, activities and potential investment.

 

INDEX

Global Competitiveness Index RANK 76
Ease of doing business RANK 65
Starting Business rank RANK 45
Global logistics report RANK 88

Global competitiveness report 2017-2018

Rank Institutions Infrastructure Health Skills Labor market Product market Business dynamism Innovation
Albania 68 100 45 47 34 58 48 91

Electricity prices

EUR/kwh HOUSEHOLD NON HOUSEHOLD
  2015 2016 2017 2015 2016 2017
Albania 0.081 0.082 0.084 / / /
EU - 28 0.209 0.205 0.204 0.121 0.116 0.114

Monthly salary

Net average monthly salary (2017) € 391

Gross average monthly salary (2017) € 372

INVESTORS CONFIDENCE

The attractive features of the area are the relatively undeveloped markets, the ability to be a first mover in many segments and continually positive economic growth in the region. Our overall experience has been quite positive.

STEVEN GRUNERUD, VICE PRESIDENT - MERGERS AND ACQUISITION, BALFIN GROUP
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Partners

Ebrd

Strategic partner

Karanovic Nikolic

Content partner

Confida

Content partner

I&F McCann

Communications partner